The surge in violence in Libya threatens to shock the oil market

A resurgence in fighting around the Libyan capital of Tripoli this week has driven U.S. forces to pull out of the country and is providing a new upside risk to global oil prices, underscoring the OPEC producer’s importance to markets and the fragility of its supply.

Rebel forces loyal to renegade General Khalifa Haftar, who effectively controls the country’s breakaway east, launched a surprise offensive against the home of Libya’s UN-recognized government last week in a move that risks plunging the country back into civil war.

The looming conflict follows a surge in crude futures in recent months on the back of tightening supply, with global benchmark Brent and U.S. West Texas Intermediate (WTI) both rallying more than 20 percent since the start of 2019.

Brent crude stood at $70 a barrel on Monday, with WTI trading at around $63.

A 75-year-old general who holds American citizenship, Haftar was formerly a Gadhafi ally but returned to Libya in 2011, after years in the U.S., to join the NATO offensive that toppled the dictator.

300,000 to 400,000 million barrels at immediate risk

The North African country of 6.4 million has been struggling to rebuild its energy industry since its 2011 revolution that ousted longtime leader Moammar Gadhafi and the ensuing collapse in central power.

Libya’s rollercoaster oil production

Exempt from OPEC’s supply cut agreements due to its civil conflict, Libya was enjoying its highest output levels in five years in the latter half of 2018. Production reached 1.28 million bpd as reported in November, up from roughly 500,000 bpd the previous June, but slipped to 900,000 bpd in February, according to OPEC.

Fresh violence in Libya could provide new shock to oil markets amid tightening global supply, CNBC, Apr 08